Best Legal Practices For Separation Agreements During Layoffs

When employees are leaving your organization, whether by choice or not, it can be in the business's best interest to provide a separation and release agreement that asks workers to waive certain claims against the employer in exchange for a new benefit. What that benefit is can be determined by the employer and includes such things as severance pay, benefits continuation, outplacement services, accrued but unused vacation, or an accelerated or pro-rated bonus -- depending in some cases on the state where the company resides.

There are a variety of scenarios where the use of separation and release agreements should be considered by employers including:

Individual involuntary terminations Individual voluntary terminations Forced resignations Reductions in force (Layoffs) In a recent RiseSmart #SmartTalkHR Webinar, "Avoiding Litigation After a Reduction in Force," my colleague, Nicole Bogard and I addressed the many aspects of layoffs and how to meet legal requirements while taking care of employees and avoiding legal action. In the webinar, Nicole addresses best practices for establishing ERISA severance plans and 409A compliance and I address the benefits and best practices for creating compliant separation and release agreements. View the webinar in its entirety, here.

Benefits of separation agreements during reductions in force

Why should employers use separation and release agreements in reorganizations or reductions in force scenarios when they could just end the employment of those affected, pay no separation benefits, and move forward? After all, reductions in force and reorganizations are usually motivated by a desire to save costs. If that's the case, why offer money to employees to basically perform no work?

The biggest strategic advantage to offering severance to employees is to mitigate the litigation risk that goes along with multi-employee terminations. The fact is, when employers terminate groups of employees as part of a single rolling action, the potential cost and disruption associated with litigation is enormous -- and will generally outweigh the cost of offering separation packages by a considerable margin.

Moreover, once separation packages are offered and accepted by a large percentage of the affected population, it allows the business to move forward and focus on its strategic objectives without the distractions associated with litigation. Any business leader who has been involved in fighting cases in court knows how time consuming and...